Great Ajax Corp. Announces Results for the Quarter Ended December 31, 2016

Fourth Quarter Highlights

  • Purchased $129.2 million of re-performing (“RPL”) and non-performing (“NPL”) loans with an aggregate unpaid principal balance (“UPB”) of $149.3 million to end the year with $870.6 million of mortgage loans with an aggregate UPB of $1,070.2 million.
  • Portfolio interest income of $19.7 million; net interest income of $12.1 million.
  • Net income attributable to common stockholders of $6.0 million.
  • Earnings per share (“EPS”) of $0.33 per diluted share.
  • Taxable income of $0.33 per diluted share.
  • Book value per share of $15.06 at December 31, 2016.
  • Raised $101.2 million, net, in secured borrowings.
  • $35.7 million of cash and cash equivalents at December 31, 2016.

NEW YORK--()--Great Ajax Corp. (NYSE:AJX), a Maryland corporation that is a real estate investment trust, today announces results of operations for the quarter ended December 31, 2016. We focus primarily on acquiring, investing in and managing a portfolio of RPL mortgage loans secured by single-family residences and commercial properties, and, to a lesser extent, NPL mortgage loans and direct investment in single-family and multi-family properties.

 
Financial Results (Unaudited)
 
($ in thousands except per share amounts)
         

December
31, 2016

September
30, 2016

June
30, 2016

March
31, 2016

December
31, 2015

Interest income $ 19,723 $ 18,707 $ 16,378 $ 15,814 $ 15,584
Total revenue (1) $ 10,969 $ 11,619 $ 10,688 $ 11,411 $ 11,688
Consolidated net income $ 6,163 $ 7,887 $ 6,861 $ 7,963 $ 8,392
Net income per diluted share $ 0.33 $ 0.42 $ 0.42 $ 0.50 $ 0.53
Average equity $ 280,213 $ 279,222 $ 248,195 $ 240,283 $ 234,656
Average total assets $ 883,621 $ 814,426 $ 671,275 $ 626,008 $ 583,951
Average daily cash balance (2) $ 32,759 $ 50,572 $ 39,043 $ 27,824 $ 28,066
Average carrying value of RPLs $ 751,801 $ 653,699 $ 539,701 $ 496,925 $ 447,512
Average carrying value of NPLs $ 59,365 $ 63,778 $ 68,205 $ 71,984 $ 75,433
 
(1) Total revenue includes net interest income, income from manager and other income
(2) Average daily cash balance includes cash and cash equivalents, and excludes cash held in trust
 

Consolidated net income for the quarter decreased primarily as a result of the increased impairments on our real estate held for sale (“REO”), discussed below, offset by an increase in our net interest income from our mortgage loan portfolio. Additionally, as previously disclosed, we recorded a one-time charge of $0.6 million related to the early call of our 2014 series secured notes.

During the fourth quarter of 2016, we made a strategic decision to list for sale the majority of our single family single unit REO that were previously under consideration to become rental property. Generally Accepted Accounting Principles (“GAAP”) require us to record REO held-for-sale at the lower of cost or net realizable value. Accordingly, we accelerate recognition of any estimated losses but continue to defer potential gains until the property is sold. As a result, we recorded an impairment of $1.3 million on 60 of our 149 held-for-sale REO properties. The carrying value of our entire held-for sale REO portfolio and its estimated liquidation proceeds is as follows ($ in thousands):

 

 

REO property held-for-sale

 

 

 

Count

 

Carrying Value
at December
31, 20161

 

Estimated
Liquidation
Proceeds

 

Excess of Estimated
Liquidation Proceeds
over Carrying Value at
December 31, 20162

Unimpaired REO 89 $ 15,085 $ 19,489 $ 4,404
Impaired REO 60   8,797   8,797   -
Total REO held-for-sale 149 $ 23,882 $ 28,286 $ 4,404
 

(1)

 

Carrying value includes cumulative balance sheet impairments of $1,620 on all active REO held for sale.

(2)

The difference between the Carrying Value and estimated liquidation proceeds is based on estimated values that are updated every six months. Changes in expected liquidation timelines, market conditions or other factors may impact the ultimate amount realized. We can provide no assurance that the difference between Carrying Value and Estimated Liquidation Proceeds will be realized in that amount or at all.

 

For loans that become REO, we believe that the earlier foreclosures out of any given loan pool typically are lower dollar value properties relative to the applicable metropolitan statistical area, with fewer or negative average dollars of equity. Conversely, we believe later-dated REO generally consists of better quality properties relative to the particular metropolitan statistical area of the property.

Over 60% of REO impairments relate to foreclosed properties that we acquired as NPLs with underlying properties located in Florida, Maryland, New Jersey and New York. Additionally, the impairments were largely related to lower relative property values within their particular metropolitan statistical areas,or properties for which the loan to value ratios had been in excess of 100%. We continue to see the majority of foreclosures occurring on loans that we acquired as NPLs during the second half of 2014. We collected $29.1 million on our mortgage loan and REO portfolios through payments, payoffs and sales of REO during the quarter and ended the fourth quarter with $35.7 million in cash and cash equivalents, a $12.4 million increase from the prior quarter.

Our investment strategy remains focused on acquiring RPLs and the percentage of RPLs relative to NPLs in our portfolio continues to increase. We continue to see significantly lower than expected re-default rates for purchased RPLs. As a result, the overall duration of the portfolio continues to extend, resulting in increased cash flow over the life of the loans and increased net asset value of the RPL portfolio as projected principal and interest payments increase, but lower yields and lower current period income as the cash flows occur over a longer time period. In addition to our continued focus on residential RPLs, we intend to increase our acquisitions of small balance commercial loans secured by multi-family residential and commercial mixed use retail/residential properties. We acquired $126.9 million and $2.0 million, respectively, of RPLs and NPLs during the quarter to end the year with $870.6 million of mortgage loans with aggregate UPB of $1,070.2 million.

 
Portfolio Acquisitions
($ in thousands)
 

December
31, 2016

 

September
30, 20161

 

June
30, 2016

 

March
31, 2016

 

December
31, 2015

RPLs
Count 729 1,416 251 218 333
UPB $ 145,720 $ 259,446 $ 70,262 $ 49,685 $ 60,956
Purchase price $ 127,200 $ 216,225 $ 52,128 $ 37,207 $ 45,861
Purchase price % of UPB 87.3% 83.3% 74.2% 74.8% 72.9%
 
NPLs
Count 23 - - - 4
UPB $ 3,590 - - - $ 910
Purchase price $ 2,022 - - - $ 585
Purchase price % of UPB 56.3% - - - 64.8%
 

(1)

 

Includes 572 re-performing loans acquired for $78.2 million and an unpaid principal balance of $100.3 million sold to Ajax E Master Trust, an affiliate of the joint venture we established in March 2016.

 

Mortgage loans purchased during the fourth quarter and held as of quarter-end were on our consolidated balance sheet for a weighted average of 43 days of the quarter. We closed on $57.9 million UPB of RPLs for $48.1 million on December 23, 2016. As a result of the acquisition, we incurred due diligence expense related to the acquisition, but had minimal corresponding income in 2016.

On October 3, 2016, we entered into separate At-the-Market Issuance Sales Agreements to sell, through our agents, shares of our common stock with an aggregate offering price of up to $50.0 million. To date, we have not issued any shares pursuant to the agreements. Additional information about the At-the-Market Issuance Sales Agreements is available in our Current Report on Form 8-K filed with the Securities and Exchange Commission on October 3, 2016.

On October 25, 2016, we completed our eighth securitization, Ajax Mortgage Loan Trust 2016-C. An aggregate of $102.6 million of senior securities and $15.8 million of subordinated securities were issued in a private offering with respect to $157.8 million UPB of mortgage loans, of which $12.9 million were small balance commercial mortgage loans. Nearly all the loans in the 2014-A and 2014-B securitizations that were called were re-securitized in 2016-C at a lower cost of funds and higher advance rate. Based on UPB approximately 82% of these mortgage loans were RPLs and approximately 18% were NPLs. Net proceeds from the sale of the senior securities provided leverage of approximately 3.9 times the related equity.

The following table provides an overview of our portfolio at December 31, 2016 ($ in thousands):

 
No. of loans   4,910       Weighted average LTV(4)   97.1%
Total UPB $ 1,070,193 Weighted average remaining term (months) 323
Interest-bearing balance $ 989,818 No. of first liens 4,886
Deferred balance(1) $ 80,381 No. of second liens 24
Market value of collateral (2) $ 1,293,611

No. of rental properties

3
Price/total UPB(3) 77.0% Market value of rental properties $ 1,263
Price/market value of collateral 64.4% Capital invested in rental properties $ 1,289
Re-performing loans 93.1% Price/market value of rental properties 102.1%
Non-performing loans 6.9% No. of other REO 149
Weighted average coupon 4.41% Market value of other REO $ 28,286
 

(1)

 

Amounts that have been deferred in connection with a loan modification on which interest does not accrue. These amounts generally become payable at maturity.

 

(2)

Market value of collateral as of most recent Broker Price Opinion; the dates of our Broker Price Opinions vary by loan status.

 

(3)

Our loan portfolio consists of fixed rate (60.1% of UPB), ARM (11.1% of UPB) and Hybrid ARM (28.8% of UPB) mortgage loans with original terms to maturity of not more than 40 years.

 

(4)

UPB as of December 31, 2016 divided by market value of collateral as of acquisition date and weighted by the UPB of the loan.

 

Subsequent Events

During January and February 2017, we acquired 21 RPLs with an aggregate UPB of $2.9 million in three transactions. The loans were acquired at 93.6% of UPB and the estimated market value of the underlying collateral is $5.5 million. The purchase price equaled 48.8% of the estimated market value of the underlying collateral.

Additionally, we have agreed to acquire, subject to due diligence, 18 RPLs with aggregate UPB of $3.0 million in three transactions from three different sellers. The purchase price equals 85.0% of UPB and 57.9% of the estimated market value of the underlying collateral of $4.4 million. We have not entered into a definitive agreement with respect to these loans, and there is no assurance that we will enter into a definitive agreement relating to these loans or, if such an agreement is executed, that we will actually close the acquisitions or that the terms will not change.

On February 16, 2017, our Board of Directors declared a dividend of $0.25 per share, which will be payable on March 31, 2017, to stockholders of record as of March 15, 2017.

On February 16, 2017, our Board of Directors authorized an increase in the annual compensation of our independent directors from $50,000 to $75,000, payable half in shares of common stock of the Company and half in cash.

On February 22, 2017, we issued 20,352 shares of our common stock to our Manager in payment of the stock-based component of the management fee due for the fourth quarter of 2016 in a private transaction. The management fee expense associated with these shares was recorded as an expense in the fourth quarter of 2016.

On February 22, 2017, we issued each of our independent directors 415 shares of our common stock in payment of half of their quarterly director fees for the fourth quarter of 2016.

Conference Call

Great Ajax will host a conference call at 5:00 p.m. EST, Wednesday, March 1, 2017 to review our financial results for the quarter. A live Webcast of the conference call will be accessible from the Investor Relations section of our website www.great-ajax.com. An archive of the Webcast will be available for 90 days.

About Great Ajax Corp.

Great Ajax Corp. is a Maryland corporation that focuses primarily on acquiring, investing in and managing mortgage loans secured by single-family residences and, to a lesser extent, single-family properties themselves. We also invest in loans secured by multi-family residential and smaller commercial mixed use retail/residential properties, as well as in the properties directly. We are externally managed by Thetis Asset Management LLC. Our mortgage loans and other real estate assets are serviced by Gregory Funding LLC, an affiliated entity. We have elected to be taxed as a real estate investment trust under the Internal Revenue Code.

Forward-Looking Statements

This press release contains certain forward-looking statements. Words such as “believes,” “intends,” “expects,” “projects,” “anticipates,” and “future” or similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions, many of which are beyond the control of Great Ajax, including, without limitation, the risk factors and other matters set forth in our Annual Report on Form 10-K for the period ended December 31, 2015 filed with the SEC on March 29, 2016. Great Ajax undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.

 

GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except share and per share amounts)

 
  Three months ended

December
31, 2016

 

September
30, 2016

 

June
30, 2016

 

March
31, 2016

(unaudited)   (unaudited)   (unaudited)   (unaudited)

INCOME:

     
Interest income $ 19,723 $ 18,707 $ 16,378 $ 15,880
Interest expense   (7,582 )   (6,941 )   (6,063 )   (4,987 )
 
Net interest income   12,140     11,766     10,315     10,893  
 
Income from investment in Manager 60 68 46 44
Other income (expense)   (1,232 )   (215 )   327     474  
 
Total income   10,969     11,619     10,688     11,411  
 

EXPENSE:

Related party expense - loan servicing fees 1,850 1,556 1,453 1,403
Related party expense - management fee 1,057 1,049 937 906
Loan transaction expense 248 100 574 213
Professional fees 348 315 407 414
Real estate operating expense 110 157 113 162
Other expense   634     537     317     353  
 
Total expense   4,247     3,714     3,801     3,451  
Loss on debt extinguishment   565     -     -     -  
Income before provision for income tax 6,158 7,905 6,887 7,960
Provision for income tax   (6 )   18     26     (3 )
Consolidated net income 6,163 7,887 6,861 7,963
 
Less: consolidated net income attributable to non-controlling interests   206     264     256     312  
 
Consolidated net income attributable to common stockholders $ 5,958   $ 7,623   $ 6,605   $ 7,651  
Basic earnings per common share $ 0.33   $ 0.42   $ 0.42   $ 0.50  
Diluted earnings per common share $ 0.33   $ 0.42   $ 0.42   $ 0.50  
 

Weighted average shares – basic

  17,958,517     17,937,079     15,742,932     15,306,519  
 

Weighted average shares – diluted

  18,766,938     18,664,586     16,389,126     15,959,202  
 
 

GREAT AJAX CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share and per share amounts)

 
(Unaudited)  

ASSETS

December 31, 2016 December 31, 2015
 

Cash and cash equivalents

$ 35,723 $ 30,795
Cash held in trust 1,185 39
Mortgage loans(1) 870,587 554,877
Property held-for-sale, net(2) 23,882 10,333
Rental property, net 1,289 58
Investment in debt securities 6,323 -
Receivable from servicer 12,481 5,444
Investment in affiliate 4,253 2,625
Prepaid expenses and other assets   1,679   5,634
Total Assets $ 957,402 $ 609,805
 

LIABILITIES AND EQUITY

 
Liabilities:
Secured borrowings, net(1) $ 442,670 $ 265,006
Borrowings under repurchase agreement 227,440 104,533
Management fee payable 750 667
Accrued expenses and other liabilities   3,819   1,786
Total liabilities   674,679   371,992
 
Equity:
Preferred stock $.01 par value; 25,000,000 shares authorized, none issued or outstanding - -
Common stock $.01 par value; 125,000,000 shares authorized, 18,098,311 shares issued and outstanding, and 15,301,946 shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively 181 152
Additional paid-in capital 244,880 211,729
Retained earnings   27,231   15,921
Equity attributable to common stockholders   272,292   227,802
Non-controlling interests   10,431   10,011
Total equity   282,723   237,813
 

Total Liabilities and Equity

$ 957,402 $ 609,805

__________________________

(1)

 

Mortgage loans includes $598,643 and $398,696 of loans transferred to securitization trusts at December 31, 2016 and December 31, 2015, respectively, that are variable interest entities (“VIEs”) that can only be used to settle obligations of the VIEs. Secured borrowings consist of notes issued by VIEs that can only be settled with the assets and cash flows of the VIEs. The creditors do not have recourse to the primary beneficiary (Great Ajax Corp).

(2)

Property held for sale, net, includes valuation allowances of $1,620 and $99 at December 31, 2016, and December 31, 2015, respectively.

 

Contacts

Great Ajax Corp.
Lawrence Mendelsohn
Chief Executive Officer
or
Mary Doyle, 503-444-4224
Chief Financial Officer
Mary.Doyle@aspencapital.com

Contacts

Great Ajax Corp.
Lawrence Mendelsohn
Chief Executive Officer
or
Mary Doyle, 503-444-4224
Chief Financial Officer
Mary.Doyle@aspencapital.com